Weight of investor demand drives (another) record year for BTR investment
Institutional investment volumes into UK Build to Rent topped £4.3 billion in 2021.
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Investment in the UK Build to Rent (BTR) sector continues to rise. More than £1.4 billion worth of deals were agreed in the final three months of 2021, pushing year-end investment volumes to a record £4.3 billion.
Annual spend was up 19% on 2020, the previous record year. Deal volumes were also up by nearly a third year-on-year.
Notable deals in Q4 included Singaporean developer CDL’s £103 million forward fund of the Octagon in Birmingham, Grainger’s £141 million forward fund of Merrick Place from Network Homes in Ealing and L&G’s forward fund of the Bargate Quarter in Southampton.
Further funding deals occurred in Manchester, Edinburgh and Leeds highlighting sustained investor appetite for the UK’s largest cities. In total, in 2021 some 76% of deals struck were for schemes outside of London.
Existing investors were particularly active in 2021. However, in addition the pool of investors looking to access the market is deepening. Around 23% of deals agreed in 2021 were from new entrants, a move which has intensified competition to either create or acquire stock.
BTR pipeline continues to grow
Rising investment volumes are also supporting delivery. The UK’s BTR stock now stands at around 60,000 completed homes with a further 170,000 either under construction, with planning granted, or in pre-planning. This brings the total pipeline to a possible 230,000 purpose-built rental homes due to be delivered in the coming years.
Against a backdrop of falling overall housing supply relative to targets across the UK, we expect BTR will play an ever more important role in meeting housing delivery targets.
Despite the rapid growth of the sector in recent years, BTR still forms a small part of the overall rental market. Completed stock accounts for just 1.3% of all private rental households, rising to 2.2% if the pipeline of under construction stock is included. Even in the most mature markets the figures point to there still being capacity for growth.
Outlook
The growth of BTR, across both multi-and single-family housing, will continue to be a central feature of the real estate market in 2022, with a significant pipeline of deals already expected to exchange in the first quarter.
The fundamentals that have driven investor interest - which include a growing and undersupplied rental market as individual buy-to-let landlords continue to rationalise portfolios, as well as BTR’s proven income streams with defensive counter-cyclical qualities - remain in place.
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